What kind of economy with the National-led government inherit? A mixed bag for sure. Speaking about this on @NewshubNationNZ with @rebeccawright. A long🧵
Mood/confidence/vibes for the economy are negative. Although business confidence has improved in recent months.
While vibes are negative, the economy continues to create more jobs. (Last recession in 2009 clearly visible, as is the dip when Covid began).
The number of businesses continues to grow! More starting & few failures. (Although starting to see increasing insolvencies).
But people feel grumpy because cost of living has really eaten into their weekly budgets.
Businesses are advertising fewer roles, but its a little at odds with growing jobs still. So it could be that there are fewer people quitting, but its hard to reconcile.
When it comes to consumer spending, volumes have been trending down for some time.
There has been a surge in migration in recent months. Double edged - more people to fill vacancies and boost the economy, but also increase pressure on housing and other infrastructure. Usually a boost for Auckland (where the inflows go), drag on provinces (who lose more ppl).
Global mood/vibes are also negative. Our #1 export destination - China - has hit the skids. This will affect the price and possibly demand for our key exports, affecting provincial NZ the most. Cost of farming is high because of higher input prices and interest rates.
While globally synchronised inflation is slowing, central banks around world likely to keep interest rates higher for longer.
While much talk of boost for housing market, high interest rates remains the big headwind.
House prices in NZ remain crazy high. National's stated policies likely to increase demand and reduce supply, at the margin. Likely to push prices higher.
But there are still loads of people about to refix their mortgages to much higher interest rates. Not clear to me that housing market fortunes will improve on politics alone.
In power, National coalition's policies will go through the rigours of Treasury analysis. I expect they will have to find more money from cuts, because there is very little fat in the projections as they stand and their tax cuts are not costed accurately.
So will the change of government change economic fortunes? Probably not. Because 3 levers of economic management: (1) Monetary policy around the world will keep trying to slow the economy.
(2) fiscal policy - if it is fiscally neutral as claimed during campaigning - by definition does not increase government stimulus. So no change there. (3) Economic policies, which are long term and is an open question and will depend on what they choose to do.
Some ideas on long term policies the new government could look to: (1) Competition policy - we need much more competition in NZ. Prices are high in NZ because we have persistently high profit margins eg vs Australia.
(2) clear policies on managed retreat. We cannot keep doing ad hoc responses to every event, and make property owners whole by collectivising their losses. Its not sustainable. Insurance will become far more expensive & less available.
(3) clear pathway and certainty on climate policies, so that businesses can get on with making long term investment decisions. Otherwise it will be adhoc demands by customers that will lead to a lack of coordination and cohesion.
(4) Serious policy settings for an ageing population and tax settings. We are rapidly running out of young people who do the work and pay most of the taxes. This is a slow moving catastrophe.
A change of government is important for those affected by 'new' decisions. But the 'net' effect for the economy? Not much will change - unless the new govt pursues good long term economic policies that deal to big issues like climate, inequality, competition, infrastructure. END
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